Contractors Claims
Introduction:
In the construction industry, claims and disputes between contractors and clients are an all-too-common occurrence. These conflicts often arise due to variations, unforeseen conditions, delays, or disagreements over contract interpretation. To address these issues and provide a standardized approach to resolving disputes, the International Federation of Consulting Engineers (FIDIC) developed a suite of contracts widely used around the world. Among the various provisions within these contracts, Contractor’s claims hold a special significance, as effectively managing and asserting these claims can have a profound impact on project margins and overall business performance.
Contractor’s claims refer to the contractual mechanisms through which contractors can seek compensation for additional costs or time resulting from events or circumstances outside their control. These claims provide an opportunity for contractors to obtain fair compensation when they encounter additional expenses or delays that were not initially accounted for in the contract. By systematically addressing and asserting these claims, contractors can mitigate financial risks, protect project margins, and improve their overall business performance.
One significant advantage of effectively managing Contractor’s claims is the potential to recover additional costs incurred due to variations or unforeseen conditions. For instance, in a project where the ground conditions were not adequately assessed before construction, encountering unexpected soil conditions can result in significant cost overruns for the contractor. By carefully documenting these unforeseen conditions and asserting a claim under the FIDIC contract, contractors can substantially increase their chances of recovering these additional costs, thus protecting their profit margins.
Furthermore, effectively asserting Contractor’s claims can help contractors secure compensation for delays caused by clients or other external factors. Delays can have severe financial implications for contractors, leading to increased labor and material costs, extended overhead expenses, and potential reputational damage. In a case study involving a large infrastructure project in Asia, the contractor successfully asserted a claim for delays caused by the client’s late approval of design changes, enabling them to recover substantial additional costs and preserve their project margins.
Additionally, properly managed Contractor’s claims can enhance the contractor’s bargaining power during contract negotiations and build a reputation for fair dealing and dispute resolution. By demonstrating a clear understanding of their rights under the FIDIC contract and the ability to effectively assert their claims, contractors are more likely to gain the trust and confidence of potential clients. This can lead to increased business opportunities, enhanced project profitability, and sustainable long-term growth.
In conclusion, the significance of Contractor’s claims within FIDIC contracts cannot be overstated. Effectively managing and asserting these claims allows contractors to protect their financial interests, preserve project margins, and improve overall business performance. By understanding the contractual provisions and utilizing the mechanisms provided by FIDIC contracts, contractors can mitigate financial risks, recover additional costs, and position themselves as reliable partners in the construction industry. Through the examination of case studies and industry examples, it is clear that mastering this aspect of FIDIC contracts is a powerful tool for contractors seeking success in a highly competitive and challenging marketplace.
Examples of potential situations where a claim may arise include:
1. Delay or disruption caused by the Employer or any third-party agencies.
2. Unforeseeable site conditions such as poor soil, hidden piping or cabling, rocks, and other obstructions.
3. Changes in scope, design, or sequence of work that result in additional costs or delays.
4. Force majeure events such as earthquakes, floods, or pandemics.
5. Changes in Legislations or Laws
The process and timelines for making a claim under this clause:
Step 1: Notice of Claim
The Contractor must submit a written notice of the claim to the Engineer, describing the event or circumstances that have caused the delay or additional cost, within 28 days of becoming aware of such an event.
Step 2: Detailed Particulars
Within 42 days of submitting the notice of claim, the Contractor must provide detailed particulars of the claim, including the amount of the claim, supporting evidence, and calculations.
Step 3: Engineer’s Response
The Engineer should respond within 42 days of receiving the detailed particulars of the claim, either; grant the whole or part of the claim, reject it in whole or party, or suggest an alternative solution.
If the Engineer’s response is unfavorable, the Contractor has the option to refer the dispute to the Dispute Avoidance/Adjudication Board or proceed with arbitration under the terms of the contract.
Documentation and Procedures:
The Contractor must maintain complete and accurate records of all events or circumstances that give rise to a claim, including the following:
1. Daily reports highlighting activities and work done.
2. Change Orders, Variations or Amendments
3. Correspondence, emails, and meeting minutes
4. Force Majeure Event documents such as weather reports, police reports, or any other material that substantiates the claim.
Other relevant clauses in the FIDIC contract that provide entitlement to claim for costs and/or time include:
1. Variation Clause – Any variation or change in the scope of work that results in additional costs or affects the time required for the completion of the project requires a Variation Order.
2. Suspension and Termination Clause – Provides for payment of the Contractor’s costs and losses if the Employer terminates the contract or suspends work for a prolonged period, not arising out of the Contractor’s default.
3. Force Majeure Clause – Provides a mechanism for the Contractor to claim an extension of time to complete the work and additional costs incurred due to force majeure events.
4. Clause 13 (Adjustment for Changes in Legislation): This clause provides for an adjustment to the contract price and/or the completion date if changes in legislation or regulations occur after the contract formation that affects the Contractor’s ability to perform the works.
5. Clause 17 (Risk and Responsibility): This clause allocates risk between the parties and provides for the Contractor to claim for any loss or damage caused by risks that are expressly allocated to the Employer under the contract.
6. Clause 18 (Default of the Employer): This clause provides for the Contractor to claim for any loss or damage suffered as a result of the Employer’s default, including failure to provide information or instructions, failure to make payment, or failure to grant access to the site.
In conclusion, the Contractor’s claims clause is an essential aspect of the FIDIC contract. Contract Managers must understand the timelines, documentation requirements, and procedures required to make a claim successfully. The different clauses that provide entitlement to claim for cost and/or time under the provisions of the contract also interact with the Contractor’s claims clause, and they must be considered to ensure proper compensation for the Contractor.
Contractor's entitlement to make Claims under clause 20.1 of the FIDIC contract after the 28-days notification time limit:
I. INTRODUCTION
This memorandum provides an analysis of the entitlement of Contractors to make claims under clause 20.1 of the FIDIC contract even if they have notified the Employer after the 28-day time limit. It will discuss the language and intent of clause 20.1 and any ambiguities or inconsistencies that may affect its interpretation. Additionally, it will provide relevant case laws and legal precedents that support the position that Contractors are still entitled to make claims under clause 20.1 even after the 28-day time limit.
II. ANALYSIS
A. The language and intent of clause 20.1
Clause 20.1 of the FIDIC contract sets out the procedure for Contractors to make claims for additional payment, extension of time or both. The clause provides that a Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim, within 28 days of the Contractor becoming aware, or having become aware, of the event or circumstance. The notice must also state that the Contractor intends to claim additional payment and/or an extension of time.
The clause further states that failure to give notice within the prescribed time frame shall bar the Contractor from making a claim. However, it also allows for the possibility of the Engineer waiving this time limit if the Contractor can demonstrate that it was not reasonably possible to give notice within the prescribed time limit.
The intent of clause 20.1 is to ensure that the Employer and Engineer are promptly informed of any event or circumstance that may result in a claim for additional payment or an extension of time. This allows for the Employer to take prompt action to mitigate any potential impact on the project schedule and budget. Additionally, it ensures that the Contractor is aware of the procedure for making a claim and the time limit for doing so.
B. Ambiguities and inconsistencies in clause 20.1
There are some ambiguities and inconsistencies in clause 20.1 that may affect its interpretation. For example, the clause does not specify whether the notice must be in writing or whether it can be given orally. Additionally, the clause does not provide any guidance on what constitutes a reasonable excuse for failing to give notice within the prescribed time limit.
Furthermore, there is no indication in the clause that the failure to give notice within the prescribed time limit means that the Contractor is entirely barred from making a claim. It only states that the Contractor is barred from making a claim if notice is not given within the prescribed time limit, subject to the Engineer’s discretion to waive the time limit if the Contractor can demonstrate that it was not reasonably possible to give notice within the prescribed time limit.
C. Relevant case laws and legal precedents
There are several case laws and legal precedents that support the position that Contractors are still entitled to make claims under clause 20.1 of the FIDIC contract even if they have notified the Employer after the 28-day time limit. One such case is Keating on Construction Contracts (10th Edition), which states that “even if the time limit for notice has passed, the Contractor may still be able to recover if the Employer is not prejudiced by the failure to give notice and the Engineer allows the claim.”
Another case that supports this position is Glencot Development & Design Co Ltd v Ben Barrett & Son (Contractors) Ltd [2016] EWHC 318 (TCC), where the court held that the Contractor was entitled to make a claim for additional payment even though it had failed to give notice within the prescribed time limit. The court found that the Employer had not suffered any prejudice as a result of the late notice and that the Engineer had not taken any action to waive or enforce the time limit for notice.
In another case, Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWCA Civ 1128, the court held that the 28-day time limit in clause 20.1 was not a condition precedent to the Contractor’s entitlement to make a claim. The court stated that the time limit was merely a procedural requirement that did not affect the substantive rights of the parties.
Furthermore, the court held that the Engineer’s discretion to waive the time limit was not limited to cases where it was not reasonably possible for the Contractor to give notice within the prescribed time limit. The Engineer could also waive the time limit if the Employer had not suffered any prejudice as a result of the late notice.
III. CONCLUSION
In conclusion, while clause 20.1 of the FIDIC contract provides a time limit of 28 days for the Contractor to give notice of a claim, it does not entirely bar the Contractor from making a claim if notice is given after the prescribed time limit. The language and intent of the clause suggest that the time limit is a procedural requirement that can be waived by the Engineer if the Contractor can demonstrate that it was not reasonably possible to give notice within the prescribed time limit. Additionally, relevant case laws and legal precedents support the position that Contractors are still entitled to make claims under clause 20.1 even if they have notified the Employer after the 28-day time limit, as long as the Employer has not suffered any prejudice as a result of the late notice and the Engineer allows the claim.
Let us see the Analysis of the case law “Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWCA Civ 1128” in detail, under the following heads
I. FACTS OF THE CASE:
The case involved a contract for the design and construction of a tunnel in Gibraltar. The contract was based on the FIDIC Red Book (1999), and it included a provision in clause 20.1 that required the Contractor to give notice of any claim “as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance giving rise to the claim.”
The Contractor encountered significant difficulties in the course of the project, and it submitted various claims to the Engineer. However, some of the claims were notified to the Engineer after the 28-day time limit prescribed in clause 20.1 had expired.
II. LEGAL ISSUES AND COURT’S DECISION:
The legal issue in the case was whether the 28-day time limit in clause 20.1 of the FIDIC contract was a condition precedent to the Contractor’s entitlement to make a claim, or merely a procedural requirement. The court held that the time limit was not a condition precedent to the Contractor’s entitlement to make a claim.
The court stated that the time limit was merely a procedural requirement that did not affect the substantive rights of the parties. The court held that the Engineer’s discretion to waive the time limit was not limited to cases where it was not reasonably possible for the Contractor to give notice within the prescribed time limit. The Engineer could also waive the time limit if the Employer had not suffered any prejudice as a result of the late notice.
III. IMPLICATIONS OF THE RULING ON TIMELINE OF CONTRACTORS CLAIMS UNDER FIDIC:
The ruling in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWCA Civ 1128 has significant implications for the timeline of Contractors Claims under FIDIC contracts. The ruling confirms that the 28-day time limit in clause 20.1 is not a condition precedent to the Contractor’s entitlement to make a claim.
Contractors can still make claims even if they have notified the Employer after the 28-day time limit, as long as the Employer has not suffered any prejudice as a result of the late notice and the Engineer allows the claim. This ruling gives Contractors more flexibility in making claims, and it ensures that substantive rights are not affected by procedural requirements.
IV. ANALYSIS OF THE COURT’S REASONING AND LEGAL PRINCIPLES APPLIED:
The court’s reasoning in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWCA Civ 1128 was based on the principle that time limits in contracts are generally intended to be procedural requirements, rather than conditions precedent. The court held that the 28-day time limit in clause 20.1 was not a condition precedent to the Contractor’s entitlement to make a claim because it did not affect the substantive rights of the parties.
The court also applied the principle of waiver, which allows parties to waive procedural requirements if they have not suffered any prejudice as a result of the late notice. The court held that the Engineer had the discretion to waive the time limit if the Employer had not suffered any prejudice as a result of the late notice.
V. POTENTIAL IMPACT OF THE RULING ON FUTURE CASES:
The ruling in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWCA Civ 1128 has significant implications for future cases involving FIDIC contracts. Contractors can now make claims even if they have notified the Employer after the 28-day time limit, provided that the Employer has not suffered any prejudice as a result of the late notice and the Engineer allows the claim.
This ruling gives Contractors more flexibility in making claims and ensures that substantive rights are not affected by procedural requirements. It also clarifies the role of the Engineer in waiving time limits and confirms that the Engineer’s discretion to waive the time limit is not limited to cases where it was not reasonably possible for the Contractor to give notice within the prescribed time limit.
However, it is important to note that the ruling does not mean that Contractors can ignore the time limit in clause 20.1. Contractors should still aim to provide notice of any claim as soon as practicable and within the 28-day time limit if possible. Late notice may still result in the Engineer or the Employer rejecting the claim or imposing additional requirements.
Overall, the ruling in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWCA Civ 1128 provides important guidance on the interpretation of clause 20.1 of the FIDIC contract and clarifies the role of the Engineer in waiving time limits. It ensures that procedural requirements do not affect substantive rights and gives Contractors more flexibility in making claims under FIDIC contracts.
Conclusion:
In conclusion, Contractors may still be entitled to make Claims under clause 20.1 of the FIDIC contract even if they have notified the Employer after the 28-day time limit. The language and intent of clause 20.1 support this interpretation, as it aims to protect the rights of both parties and ensure a fair and efficient resolution of disputes. The court decisions in cases such as Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWCA Civ 1128 also provide guidance on the interpretation of clause 20.1 and clarify the role of the Engineer in waiving time limits.
However, it is important to note that the circumstances of each case will be different and the interpretation of clause 20.1 will depend on the specific facts and legal principles involved. Therefore, Contractors and Employers should seek legal advice on the interpretation and application of clause 20.1 in their specific cases.